HDFC Bank Ltd. raised $500 million on Feb. 28, taking total
foreign borrowings in the first two months to a six-year high of
$2.94 billion, according to data compiled by Bloomberg. Average
dollar yields for Indian issuers fell 44 basis points, or 0.44
percentage point, in 2013 to an all-time low of 3.82 percent,
HSBC Holdings Plc indexes show. A similar gauge for all Asian
U.S. currency debt added 11 basis points to 3.53 percent.

Bharti, the nation’s largest mobile-phone operator, issued
5.125 percent, 10-year notes to help fund $2.3 billion of
capital spending after interest costs contributed to a 72
percent slump in its net income last quarter. India slashed a
tax on overseas borrowings in September. IDFC Ltd. and Jindal
Steel & Power Ltd. are among issuers seeking to take advantage
of a surge in global cash availability as central banks from the
U.S. to Europe and Japan print money to boost growth.

“It’s very attractive to raise cheaper overseas capital,
which works to the advantage of Indian issuers,” Prabal
Banerji, chief financial officer at Adani Power Ltd., based in
the western Indian city of Ahmedadbad, said in a phone interview
yesterday. “It’s cost-driven issuance by companies, with
liquidity and tenor as added advantages.”

Shrinking Spreads

The yield premium on Indian companies’ dollar bonds over
U.S. Treasuries has decreased 48 basis points, 0.48 percentage
point, this year to 319, near the lowest since April 2011,
according to HSBC data. Five-year rupee debt costs for firms
rated AAA by Standard & Poor’s Indian unit Crisil Ltd. fell 17
basis points since Dec. 31 to 8.93 percent, according to
Bloomberg data.

“2013 should definitely be one of the better years for
offshore borrowing by Indian issuers,” Maneesh Malhotra,
Mumbai-based head of debt capital markets at HSBC, said in a
phone interview on March 1. “Demand for Indian debt continues
to remain strong and spreads have narrowed as the outlook on
Indian macro-economy is showing a stabilizing trend.”

Bharti agreed to pay an extra amount of 325 basis points on
its debut dollar bonds over similar-dated U.S. Treasuries,
according to data compiled by Bloomberg. Part of the proceeds
from the notes, rated BBB- by Fitch Ratings Ltd. and BB+ by
Standard & Poor’s, will be used for debt repayments.

“Risk aversion is easing as issuers are probably willing
to look beyond some of the risks at least for the short term,”
Sergey Dergachev, a portfolio manager who oversees about $9
billion of assets at Union Investment Privatfonds in Frankfurt,
said in a telephone interview on March 1. “We expect a further
shrinkage in spreads because of this sentiment and borrowers
should come to the market now.”

The yield on HDFC Bank’s 3 percent bonds fell 2 basis
points today to 3.06 percent in the first decline since trading
in the notes started March 1, according to Royal Bank of
Scotland Group Plc prices.

Rupee Yields

Yields on the 10-year Indian government bonds fell 18 basis
points so far this year, narrowing the difference to similar-maturity U.S. Treasuries to 599. The yield on the benchmark 8.15
percent note due June 2022 fell two basis points to 7.87 percent
today, data compiled by Bloomberg show.

Rupee-denominated sovereign bonds returned 11.01 percent in
the past year, the most after the Philippines among Asia’s 10
biggest local-currency debt markets tracked by HSBC. The rupee
rose 0.4 percent to 54.64 per dollar in Mumbai today.

Indian companies raised a record $9.8 billion in 2012
selling foreign-currency securities, data compiled by Bloomberg
show, as the average yield on dollar notes issued from the
nation slid 257 basis points in the biggest drop since 2009.

Corporate bond risk in India fell this year. The average
cost for credit-default swaps insuring against default for five
years the debt of seven Indian issuers slid 18 basis points to
252, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in privately
negotiated markets.

Rising Confidence

Local borrowers are tapping overseas markets for funds as
Indian policy makers’ efforts to strengthen the economy help
revive investor confidence in the nation. Since mid-September,
Prime Minister Manmohan Singh has allowed more foreign
investment in industries and markets and cut taxes on companies’
overseas debt to spur growth. Reserve Bank of India Governor
Duvvuri Subbarao reduced the benchmark repurchase rate on Jan.
29 by 25 basis points to 7.75 percent, the first reduction in
nine months, to support the economy.

Finance Minister Palaniappan Chidambaram’s goal to narrow
the budget deficit to 4.8 percent of gross domestic product in
the year through March 2014, from an estimated 5.2 percent in
the preceding 12 months, is “realistic” and credit-positive
for the sovereign, Atsi Sheth, an analyst at Moody’s Investors
Service, wrote in a report yesterday. Chidambaram unveiled the
annual budget on Feb. 28.

“With the help of the positivity that is prevailing among
investors and the comfortable liquidity, issuers with strong
fundamentals should be able see strong demand,” Clifford Lee,
the head of fixed-income at DBS Group Holdings Ltd., said by
telephone on Feb. 27. “I believe the price at which prospective
issuers will be able to sell would be in line with the market
conditions and they won’t have to bear a premium.”